CPA REVIEW SCHOOL OF THE PHILIPPINESCPA REVIEW SCHOOL OF THE PHILIPPINES
PRACTICAL ACCOUNTING PROBLEMS 1PRACTICAL ACCOUNTING PROBLEMS 1
Final Preboard ExaminationFinal Preboard Examination
SET ASET A
1. 1.
Joanna Company hJoanna Company h
ad a trademark ad a trademark
that was that was
Company for Company for
royalties of 15% royalties of 15%
of sales of of sales of
thethe
trademarked items. Royalties are payable semiannually on March 15 trademarked items. Royalties are payable semiannually on March 15
for sales in Julfor sales in Jul
y through December of they through December of the
prior year, and on September 15 for sales prior year, and on September 15 for sales
in January through June of the current year. The in January through June of the current year. The
entity receivedentity received
royalties of P1,000,000 and P1,200,000 on March 15, 2014 and royalties of P1,000,000 and P1,200,000 on March 15, 2014 and
March 15, 2015, respectively, and P1,500,000March 15, 2015, respectively, and P1,500,000
and P1,700,000 on September 15, 2014 and September 15, 2015, respectively. The land P1,700,000 on September 15, 2014 and September 15, 2015, respectively. The l
icense estimated that salesicense estimated that sales
of the trademarked items would total P6,000,000 for July through December 2015. Wof the trademarked items would total P6,000,000 for July through December 2015. W
hat amount of royaltyhat amount of royalty
revenue should be reported in 2015?revenue should be reported in 2015?
a. 2,600,000a. 2,600,000
b. 2,900,000b. 2,900,000
c. 3,800,000c. 3,800,000
d. 4,100,000d. 4,100,000
2. 2.
On January 1On January 1
, 2014, the , 2014, the
city government prcity government pr
ovided Eros Company ovided Eros Company
a zero interest, a zero interest,
P8,000,000 loan with a P8,000,000 loan with a
4-year4-year
term. The prevailing market rate of interest for this type of term. The prevailing market rate of interest for this type of
loan is 8%. The PV of loan is 8%. The PV of
1 at 8% for 4 1 at 8% for 4
periods is 0.735,periods is 0.735,
and the PV of an ordinary annuity of and the PV of an ordinary annuity of
1 at 8% for 4 periods 1 at 8% for 4 periods
is 3.312. What amount of deferred grant income shouldis 3.312. What amount of deferred grant income should
be recognized on December 31,2015?be recognized on December 31,2015?
a. 2,120,000a. 2,120,000
b. 1,649,600b. 1,649,600
c. 1.141,568c. 1.141,568
d. 0d. 0
3. 3.
On January On January
1, 2014, 1, 2014,
Karlo Company Karlo Company
constructed building constructed building
costing P4,215,000. costing P4,215,000.
The weighted The weighted
averageaverage
accumulated expenditure on the building during accumulated expenditure on the building during
2014 was P3,900,000. The entity borrowed P2,000,000 at 7.5%2014 was P3,900,000. The entity borrowed P2,000,000 at 7.5%
on January 1, 2014. Funds not needed on January 1, 2014. Funds not needed
for construction were temporarily invested in short-term securities, andfor construction were temporarily invested in short-term securities, and
earned P59,000 in interest revenue. In addition to the earned P59,000 in interest revenue. In addition to the
construction loan, the entity had two other notesconstruction loan, the entity had two other notes
outstanding during the year: a P1,500,000, 10-year, 10% note paoutstanding during the year: a P1,500,000, 10-year, 10% note pa
yable dated October 1, 2012, and a 5yable dated October 1, 2012, and a 5
-year-year
P1,000,000, 8%, note payable dated November 2, 2013. Construction was completed on December 31, 2014 andP1,000,000, 8%, note payable dated November 2, 2013. Construction was completed on December 31, 2014 and
the building is to be leased out under an operating lease. What is the initial cost of the building on December 31,the building is to be leased out under an operating lease. What is the initial cost of the building on December 31,
2014?2014?
a. 4,215,000a. 4,215,000
b. 4,165,800b. 4,165,800
c. 4,539,800c. 4,539,800
d. 4,480,800d. 4,480,800
4. 4.
On December 3On December 3
1, 2014, Laurence 1, 2014, Laurence
Company reported Company reported
bonds payable having bonds payable having
a face amount a face amount
of P2,000,000 of P2,000,000
andand
unamortized discount of P160,000. The bonds were retired at 102 ounamortized discount of P160,000. The bonds were retired at 102 o
n October 31, 2015. Accrued interest onn October 31, 2015. Accrued interest on
October 31, 2015 amounted to P50,000 which was paid in October 31, 2015 amounted to P50,000 which was paid in
cash. The annual discocash. The annual disco
unt amortization for 2015 wasunt amortization for 2015 was
P30,000. What amount of gain or loss on extinguishment should be recognized for 2015?P30,000. What amount of gain or loss on extinguishment should be recognized for 2015?
a. a.
170,000 170,000
lossloss
b. b.
125,000 125,000
lossloss
c. c.
175,000 175,000
lossloss
d. d.
175,000 175,000
gaingain
5. 5.
Orville Company is Orville Company is
a dealer in equipment. a dealer in equipment.
The entity leased The entity leased
equipment to a lessee equipment to a lessee
on January 1, on January 1,
2014 for an2014 for an
eight-year period expiring January 1, 2022. Equal anneight-year period expiring January 1, 2022. Equal ann
ual payments under the lease are due at ual payments under the lease are due at
the end of eachthe end of each
year beginning December 31, 2014. The lease ayear beginning December 31, 2014. The lease a
greement included a guarantee residual value of greement included a guarantee residual value of
P200,000 andP200,000 and
an implicit interest rate of 10%. It was determined that an implicit interest rate of 10%. It was determined that
the fair value of the asset is the fair value of the asset is
P3,000,000, the carryingP3,000,000, the carrying
amount is P2,500,000 and that the present value of
the minimum lease payment at 10% is P2,760,900. The PV of
1 at 10% for 8 periods
is 0.467, and the PV of an
ordinary annuity of 1 at 10% for
8 periods is 5.335. What is
the
total financial revenue over the lease
term?
a. 1,558,538
b. 1,498,594
c. 1,379,156
d. 1,439,100
6.
Cristy Company
acquired a new
machine which had
a cash price
of P2,100,000.
The payment te
rms are down
payment P500,000, note payable in 3 equal
annual installments of P600,000 each year, and 10,000
ordinary
shares with par value of P20 and
fair value of P35 per share. Prior to use, the
entity incurred installation cost of
P80,000. What amount of discount on note payable should be recognized on the date of purchase?
a. 1,250,000
b. 550,000
c. 150,000
d. 0
7.
On De
cember 31,
2014, Mark
Company
presented t
he following
current
assets:
Cash 3,200,000
Accounts receivable
2,000,000
Inventory 2,800,000
Initial
direct
cost
in
leasing
equipment
to
a
lessee
in
a
sales
type
lease
200,000
The accounts receivable consisted of the following
items:
Customers’ account
 1,420,000
Account receivable
–
assigned (net of equity of assignee in
Advances to subsidiary
260,000
What amount should be recognized as total current assets on
December 31, 2014?
d. 7,740,000
authorized for issue on March 31, 2015.
The asset was purchased on November 12, 2014.
On M
arch 15,
2015, the
entity discovered
that t
he 2014
depreciation expen
se was
overstated by
On M
arch 20,
2015, the
entity issued
100,000 ordinary
shares at
par of
P10 p
er share.
On M
arch 27,
2015, the
entity filed
a case
against another
entity for
patent infr
ingement. The
counsel assessed that it is probable that the
entity will win the
case for an amount of P550,000.
a. 5,720,000
b. 5,170,000